Dion Bisara – The government has been forced to set aside hundreds of trillions of rupiah from an already-strained state budget to prepare for a slew of lawsuits.
Finance Minister Agus Martowardojo said on Thursday that so far this year the government had estimated Rp 205 trillion ($21.6 billion) was needed in reserve for expenses associated with the resolution of legal cases.
The expenses include costs associated with the settlement of legal disputes, potential losses of state assets and potential losses of tax, fee and royalty revenue. The potential liability equals 2.2 percent of the country's gross domestic product.
It consists of Rp 201.5 trillion in the local currency, with the remainder in US dollars and British pounds, according to a proposed 2013 state budget. The total was more than triple the amount the government faced last year and substantially ahead of the 2010 figure as well. The potential liabilities exceed next year's forecast budget deficit of Rp 150.2 trillion and Rp 194 trillion in fuel subsidies.
Agus said the amount the government was ultimately required to pay could be lower than the estimate, depending on court verdicts in outstanding cases.
"Still, we have to pay for disputes that have been decided by courts in a final and in-force ruling," Agus told reporters, without providing further details. "The details will be discussed with the House of Representatives."
The government submitted its proposed 2013 state budget to legislators on Aug. 16. Ministers and legislators are slated to discuss it in coming months.
Neither Bambang Brodjonegoro, the head of the Fiscal Management Office at the Finance Ministry, nor Herry Purnomo, director general of state budget at the ministry, responded to requests from the Jakarta Globe for details on the lawsuits.
Analysts said the spike in government lawsuit liability highlighted the state's weakness in planning, formulating and executing policy and thoroughly considering legal implications.
"Besides, there's growing awareness among Indonesians about the law – that government is not always right," said Ahmad Erani Yustika, an economist at think tank the Institute for Development of Economics and Finance.
Overlapping regulations may also spark confusion among central and regional authorities on how to implement policies, leading to legal loopholes that can be exploited by other parties, Erani said.
Still, despite the size of the potential legal liability, Erani said he expected the impact of the lawsuits on next year's budget to be limited, because legal processes will likely take several years to resolve. That means the risk of paying the liabilities will be spread over several years.
"Moreover, it's not likely that the government will lose all of the lawsuits," the economist said.
Poor administration coupled with Indonesia's weak legal system has been blamed as one of the main culprits in the disputes. Foreign investors in the oil and gas sector have been involved in legal disputes with the central government, with many cases involving the terms of mining licenses.
One recent case is a $2 billion legal suit by Britain's Churchill Mining, in which Indonesia faces a high-profile arbitration in an international court.
On May 22, the coal miner sought arbitration against the government at the International Center for Settlement of Investment Disputes in Washington, claiming the regional government in East Kutai, East Kalimantan, seized its assets without proper compensation.
East Kurtai district head Isran Noor claimed that Ridlatama Group, Churchill's local partner, had falsely obtained permits for the mines and the mines overlapped with a forest conservation area. Isran said the lawsuit should have been directed at Ridlatama.
President Susilo Bambang Yudhoyono has also weighed in on the Churchill issue, saying he believed the district administration had done nothing wrong, and asked all government officials to fight against foreign corporations.
The government has appointed Amir Syamsudin to handle the Churchill case in the international court.
Accounting practices require potential future liabilities, including legal payouts, to be identified and budgeted.